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United-Continental Merger Clears Federal Hurdle

The Justice Department said late Friday that it had cleared the planned $3 billion merger between United Airlines and Continental, lifting the biggest regulatory hurdle to the creation of the world’s top airline.

The Justice Department said it had closed its review following a “thorough investigation” of the proposed merger after Continental agreed to lease 18 pairs of takeoff and landing slots at Newark Liberty International Airport to Southwest Airlines to resolve competition concerns.

United and Continental, which announced the merger in May, said they now expected to complete it by Oct. 1 after a shareholder vote on Sept. 17.

If the deal is completed, one entity, called United Continental Holding Inc., would operate the two companies as separate airlines for a year until the Federal Aviation Administration issues a single operating certificate.

Although some analysts had warned that the merger could raise antitrust concerns, particularly in the New York area, where Continental has a hub in Newark, the government approved the deal in record time. While few expected regulators to oppose the merger, the approval surprised some analysts who had expected the process to take until the end of the year.

“Given the size and the breadth of their networks, the concession to Southwest is a very small price to pay to get the deal done,” said Hunter Keay, an airline analyst at Stifel, Nicolaus & Company.

The rapid timing is a victory for Continental’s chief, Jeffery A. Smisek, who will run the merged company, and who has been pushing to complete the deal quickly. The Justice Department has apparently accepted the position of the airlines, which insisted that their hubs did not overlap. The department said the airlines would combine “largely complementary networks, which would result in overlap on a limited number of routes where United and Continental offer competing nonstop service.”

A sticking point was Continental’s hub in Newark, where new landing and takeoff slots are limited. United and Continental operate 442 daily round-trip flights at Newark. The deal with Southwest “resolves the department’s principal competition concerns and will likely significantly benefit consumers on overlap routes as well as on many other routes,” the Justice Department said.

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The all-stock merger will form a coast-to-coast giant with a leading presence in the top domestic markets, including Chicago, Los Angeles and New York, and an extended network to Asia, Europe and Latin America. The combined company will keep the United name and will be based in Chicago.

Together, the airlines will have 21 percent of domestic capacity, in terms of available seat miles, or one seat flown one mile, exceeding the 20 percent held by Delta, the current market leader.

The merger agreement itself was completed in a swift two weeks in May, after United’s talks with US Airways prompted Continental to propose a deal. The airlines said that merging would allow them to fend off low-cost rivals at home and to compete more effectively abroad.

The agreement provides an opportunity for Southwest to increase its small presence in the New York region. Southwest has eight pairs of landing and takeoff slots at La Guardia Airport.

While United and Continental outlined a rapid calendar for the merger, a few pitfalls remain, although none that could stop a deal because shareholders of both airlines are expected to approve the merger, which both boards support.

The airlines are seeking an endorsement from their respective pilots’ unions, whose approval is needed for a collective agreement that merges their seniority lists. Last month, the airlines said they had an agreement in principle with their pilots on how to manage those talks. United and Continental say they hope for a quick resolution of the pilot talks similar to what Delta Air Lines did when it bought Northwest Airlines in 2008.

United and Continental were close to merging two years ago, but Continental walked away hours before a deal was to be announced because of United’s poor financial health.

A version of this article appears in print on August 28, 2010, on Page B1 of the New York edition with the headline: U.S. Backs Continental And United Merger Plan. Order Reprints|Today's Paper|Subscribe